Item 1.01. Entry into a Material Definitive Agreement.
Credit and Security Agreement
On June 27, 2023, Scilex Pharmaceuticals Inc. (the “Borrower”), a Delaware corporation and a wholly owned subsidiary of Scilex Holding Company (the “Company”), entered into a Credit and Security Agreement (the “Credit Agreement”) with eCapital Healthcare Corp. (the “Lender”). The Credit Agreement provides that the Lender shall make available to the Borrower revolving loans (the “Revolving Facility”) in an aggregate principal amount of up to $30,000,000 (the “Facility Cap”). The Facility Cap may, at the request of the Borrower and with the consent of the Lender, be increased in increments of $250,000 at such time as the outstanding principal balance under the Credit Agreement equals or exceeds 95% of the then-existing Facility Cap. The amount available to the Borrower under the Revolving Facility at any one time is the lesser of the Facility Cap and 85% of the “Net Collectible Value” of “Eligible Receivables” (in each case, as defined in the Credit Agreement) minus the amount of any reserves or adjustments against receivables required by the Lender, in its discretion.
Under the terms of the Credit Agreement, interest will accrue daily on the principal amount outstanding at a rate per annum equal to the Wall Street Journal Prime Rate plus 1.50%, based on a year consisting of 360 days, and which shall be payable by the Borrower monthly in arrears, commencing July 1, 2023. The Credit Agreement provides for an early termination fee of 0.50% of the Facility Cap if the Borrower voluntarily prepays and terminates in full the Revolving Facility prior to the first anniversary of the closing of the Revolving Facility.
The Credit Agreement provides that the Borrower and Lender shall enter into a blocked account control agreement with respect to the Borrower’s collections account, which permits the Lender to sweep all funds in such collections account to an account of the Lender for application to the outstanding amounts under the Revolving Facility. All indebtedness incurred and outstanding under the Credit Agreement will be due and payable in full on July 1, 2026, unless the Credit Agreement is earlier terminated.
The Borrower’s obligations under the Credit Agreement are secured by a continuing security interest in the Borrower’s accounts receivable, related deposit accounts, and in the other “Collateral” as defined in the Credit Agreement. In addition, the Company has guaranteed the obligations of the Borrower under the Credit Agreement, as more fully described below.
The Credit Agreement contains certain representations and warranties and various affirmative and negative covenants applicable to facilities of this type, including covenants that, among other things, will limit or restrict the ability of the Borrower, subject to negotiated exceptions, to incur additional indebtedness and additional liens on the Borrower’s assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, enter into transactions with affiliated persons, or make investments. The Credit Agreement also contains a financial covenant requiring the Borrower to maintain cash on hand in “Controlled Deposit Accounts” (as defined in the Credit Agreement) plus availability under the Revolving Facility of at least $1,000,000 at all times.
The Credit Agreement contains customary events of default and also provides that an event of default includes a Borrower Change of Control (as defined in the Credit Agreement) and the Company’s failure to issue at least $75,000,000 of debt or equity by September 30, 2023. The events of default under the Credit Agreement are subject to customary thresholds and grace periods as set forth in the Credit Agreement.
Subject to certain notice requirements and other conditions, upon the occurrence of an event of default, commitments may be terminated and all amounts outstanding under the Revolving Facility may become immediately due and payable; however, where an event of default arises from certain insolvency events, the commitments shall automatically and immediately terminate and all amounts outstanding under the Revolving Facility shall become immediately due and payable.
The proceeds of the Revolving Facility will be used for (i) transaction fees incurred in connection with the Credit Agreement, (ii) working capital needs of the Borrower and (iii) other uses not prohibited under the Credit Agreement.
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